TAX INDEMNITY AGREEMENT
THIS TAX INDEMNITY AGREEMENT is made this 3rd day of October, 1997, by
and among JEVIC TRANSPORTATION, INC., a New Jersey corporation (the "Company"),
and each of the Company's shareholders (collectively, the "Shareholders" and
each individually a "Shareholder").
W I T N E S S E T H:
WHEREAS, the Company filed an election prior to March 15, 1990, with
the Internal Revenue Service to be taxed as an "S" corporation under Subchapter
S of the Internal Revenue Code of 1986, as amended (the "Code") and under
similar provisions of state and local tax laws;
WHEREAS, for the period (the "S Corporation Period") commencing on
January 1, 1990 until the close of business on the Termination Date (as
hereinafter defined), the Company will have been taxed as an "S" corporation
under Subchapter S of the Code and under similar provisions of applicable state
and local tax laws;
WHEREAS, for Federal and certain state and local income tax purposes,
the Company's items of income, loss and deductions were passed through to and
reported on the individual tax returns of the Shareholders;
WHEREAS, as a result of the initial public offering ("Public Offering")
of the Company's common stock, no par value per share ("Common Stock"), the
Company will no longer be eligible to be taxed as an S corporation for Federal
and certain state and local income tax purposes; and
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WHEREAS, the parties to this Agreement recognize that the election of
the Company to be taxed under Subchapter S of the Code will terminate
automatically at the close of business on the day (the "Termination Date")
immediately preceding the closing ("Closing") of the Public Offering; and
WHEREAS, the parties to this Agreement desire to set forth their
agreement with respect to certain taxes (and related liabilities) which may be
imposed upon the Shareholders or the Company as a result of the invalidity or
termination of the Company's S corporation election or the conduct of the
Company's business during the S Corporation Period;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. Prior to consummation of the Public Offering, the Company will
distribute to the Shareholders the sum of $10,000,000 to shareholders of record
as of August 11, 1997. In addition, the Company will make additional
distributions to the Shareholders for the purpose of providing the Shareholders
with sufficient funds to pay their estimated income tax liabilities attributable
to the Company's taxable income earned in 1997 prior to the Closing. Such
distributions (collectively, the "Distributions") were made on a pro rata basis
in accordance with the number of shares of Common Stock owned by each
Shareholder on the respective record date or date of distribution, as the case
may be.
2. a. The Company agrees to indemnify, defend and hold harmless each
Shareholder, from and against any and all losses, liabilities, obligations,
damages, impositions, assessments, fines, deficiencies, costs and expenses,
including without limitation, attorneys' and
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accountants' fees and expenses (collectively, a "Loss") with respect to all
Federal, state, city, or municipal taxes of any kind whatsoever including
interest, penalties, and additions to taxes (collectively, "Taxes") imposed upon
a Shareholder as a result of an adjustment or change, including any increase in
items of income or gain or any decrease in items of loss, deduction, or credit
reported to such Shareholder by the Company with respect to the Company's S
Corporation Period, but only to the extent that such adjustment or change
consists of: (i) an increase in an item of the Company's income or gain with
respect to one or more of the taxable years of the Company (including short
taxable years) failing within the Company's S Corporation Period ("S Years") and
a corresponding decrease in an item of income or gain with respect to one or
more of the taxable years of the Company (including short taxable years) falling
outside of the Company's S Corporation Period ("C Years"); or (ii) a decrease in
an item of loss, deduction, or credit reported to a Shareholder by the company
with respect to one or more of the Company's S Years and a corresponding
increase in an item of loss, deduction, or credit with respect to one or more of
the Company's C Years. Any payment with respect to a Loss for Taxes shall be
paid in cash by the Company no later than ten days prior to the due date of any
payment required to be made by the Shareholder with respect to such Taxes.
b. In the event any Taxes as to which an amount shall have been paid
to a Shareholder by the Company pursuant to Section 2(a) are subsequently
refunded or repaid to such Shareholder, such Shareholder agrees to repay to the
Company such refund or repayment, less any net tax cost incurred by the
Shareholder with respect to such amounts.
c. Each Shareholder agrees to prepare his income tax returns with
respect to the calendar year in which the Termination Date occurs consistent
with the manner in
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which each item of income, loss, deduction and credit of the Company is reported
by the Company to each such Shareholder.
3. a. The Shareholders, individually on a pro rata basis in accordance
with the number of shares of Common Stock owned by each Shareholder on the
Termination Date, agree to indemnify, defend and hold harmless the Company, from
and against any and all Losses with respect to Taxes imposed upon the Company as
a result of an adjustment or change, including any increase in items of income
or gain or any decrease in items of loss, deduction or credit of the Company,
whether before, during or after the Company's S Corporation Period, but only to
the extent that such adjustment or change (i) results from the invalidity or
termination of the Company's S corporation election for any reason other than
the Public Offering, or (ii) consists of: (A) an increase in an item of the
Company's income or gain in any C Year and a corresponding decrease in an item
of income or gain reported to the Shareholders by the Company with respect to an
S Year; or (B) a decrease in an item of loss, deduction, or credit reported by
the Company in any C Year and a corresponding increase in an item of loss,
deduction, or credit with respect to an S Year. Any payment with respect to a
Loss for Taxes shall be paid in cash by the Shareholders no later than ten days
prior to the due date of any payment required to be made by the Company with
respect to such Taxes.
b. The obligation of the Shareholders to indemnify the Company under
Section 3(a)(i) shall be limited in amount to the refund of Taxes received (or
increases in net operating losses incurred multiplied by the federal income tax
rate applicable for the shareholder) by such Shareholder as a result of the
termination or invalidity of the S corporation election. Each Shareholder agrees
that if the Company does or is to realize a Loss with respect to
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Taxes because of the termination or invalidity of the S corporation election,
such Shareholder will use his or her best efforts to file all necessary amended
tax returns to claim all available refunds (or to achieve an increase in net
operating loss carry forward).
c. In the event any Taxes as to which an amount shall have been paid
to the Company by the Shareholders pursuant to Section 3(a) are subsequently
refunded or repaid to the Company, the Company agrees to repay to the
Shareholders such refund or repayment, less any net tax cost incurred by the
Company with respect to such amounts.
d. In the event that the S corporation election of the Company is
terminated during the S Corporation Period for any reason other than the Public
offering, each of the Shareholders and the Company agrees to take such steps as
are reasonably necessary to obtain relief from the effects of such termination
pursuant to Section 1362(f) of the Code and the regulations thereunder.
4. a. Any Shareholder receiving notice of an intention by a taxing
authority to audit any return of the Shareholder or the Company which includes
any item of income, gain, deduction, loss, or credit reported by the Company
with respect to any S Year shall inform the Company, in writing, of the intended
audit within 15 days after receipt of such notice. Should the Company receive
notice of an intention by a taxing authority to audit any return of the Company
which includes any item of income, gain, deduction, loss, or credit reported by
the Company with respect to any S Year shall inform the Shareholders, in
writing, of the intended audit within 15 days after receipt of such notice.
b. On behalf of all Shareholders, the Shareholder with the largest
percentage interest in the outstanding stock of the Company on the Termination
Date shall be
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responsible for management and supervision of such audit of the Company (the
"Managing Shareholder"). The Company shall cooperate with such audit by, without
limitation, organizing and making available all books and records of the Company
and participating, on a reasonable basis, in meetings and correspondence with
the taxing authority. The cost of professional assistance, including independent
accountants and attorneys hired by any or all of the Shareholders in the course
of the audit shall be borne by such Shareholder or Shareholders. The Company
shall have the right to participate in the audit, directly or through its
representatives, at its expense, and the Managing Shareholder shall keep the
Company informed of all meetings, correspondence and other procedural aspects of
the audit.
c. Any Shareholder (a "Notified Shareholder") receiving notice from
a taxing authority of any proposed adjustment for which the Company may be
required to indemnify the Notified Shareholder for any Loss for Taxes under
Section 2(a) (a "Proposed Adjustment") must give notice to the Company of the
Proposed Adjustment within 15 days after receipt of such notice from a taxing
authority. A failure on the part of a Notified Shareholder to provide such
notice to the Company on a timely basis shall not relieve the Company of its
obligation of indemnification under Section 2(a) unless such failure materially
prejudices the ability of the Company to cause the Proposed Adjustment to be
contested. The Company may, based on the procedural rules then in effect either
contest such Proposed Adjustment or upon giving written notice to the Notified
Shareholder, request that the Notified Shareholder contest such Proposed
Adjustment. If the Company shall contest such Proposed Adjustment itself, the
Company shall bear all associated costs. If the Company shall request that any
Proposed Adjustment be contested by the Notified Shareholder, then the Notified
Shareholder shall, at the Company's
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expense, contest (or engage representatives to contest) the Proposed Adjustment
or permit the Company and, its representatives, at the Company's request, to
contest the Proposed Adjustment (including pursuing all administrative and
judicial appeals and processes). The Company shall pay to the Shareholders on
demand all costs and expenses (including attorneys' and accountants' fees) that
the Shareholders may incur in contesting such Proposed Adjustments.
d. Without regard to any other provisions of this Agreement, the
Shareholders shall not make, accept or enter into a settlement or other
compromise with respect to any Taxes of the Company, which could be the subject
of indemnification (whether by the Shareholders or the Company), or forego or
terminate any proceeding relating to a proposed adjustment without the consent
of the Company, which shall not be unreasonably withheld or delayed.
e. Procedures similar to those set forth in Section 4(c) shall apply
to any Proposed Adjustment with respect to which the Shareholders may be
obligated to indemnify the Company with respect to any Loss for Taxes under
Section 3; provided, however, that the Company shall have the right to require
the Shareholders, at the Shareholders' expense, to contest any proposed
adjustment that results from an assertion that there was a termination of the S
corporation election or that it was invalid during any time in the S Corporation
Period until a final judicial determination is reached as to the status of the S
corporation election for the relevant time period. The Company shall not
exercise such right if, in the judgment of the Company, there is no reasonable
basis for contesting the assertion that the S election terminated or was
invalid. Should the validity or termination of the S corporation election be
raised in any audit with respect to Taxes, each Shareholder shall take all
necessary steps to extend the time period for which such
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Shareholder could file an amended tax return relating to the period for which
the S corporation election is in question.
f. Nothing in this Section 4 shall limit the Company's or the
Shareholders' obligation to indemnify the other party pursuant to Sections 2 or
3 hereof if the indemnifying party decides not to contest, or abandons its prior
decision to contest, a Proposed Adjustment.
5. The Company shall elect and the Shareholders shall consent, pursuant
to Section 1362(e)(3) of the Code, to allocate tax items to its short taxable
year ending on the Termination Date and its short taxable year beginning after
the Termination Date pursuant to as if the tax year had ended on the Termination
Date (the "closing of the books method").
6. The covenants and agreements of the parties set forth in this
Agreement shall survive indefinitely.
7. All notices, requests, demands and other communications which are
required or which may be given under this Agreement shall be in writing.
8. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral and written, between the parties hereto with
respect to the subject matter hereof.
9. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
10. No provision of this Agreement may be amended, waived or otherwise
modified without the prior written consent of each of the parties hereto.
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11. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument. This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as the signatories.
12. This Agreement shall be effective upon the Termination Date.
13. This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New Jersey, without reference to the
principles of conflicts of law.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
JEVIC TRANSPORTATION, INC.
By: /s/ Paul J. Karvois
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Paul J. Karvois
/s/ Harry J. Muhlschlegel
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Harry J. Muhlschlegel
/s/ Karen B. Muhlschlegel
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Karen B. Muhlschlegel
KAREN B. MUHLSCHLEGEL 1996
GRANTOR ANNUITY TRUST
DATED OCTOBER 24, 1996
By: /s/ Karen B. Muhlschlegel
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Karen B. Muhlschlegel, Trustee
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HARRY J. MUHLSCHLEGEL 1996
GRANTOR ANNUITY TRUST
DATED OCTOBER 24, 1996
By: /s/ Harry J. Muhlschlegel
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Harry J. Muhlschlegel, Trustee
JEFFREY MUHLSCHLEGEL INCOME TRUST
DATED DECEMBER 31, 1994
By:
By: /s/ George K. Reynolds III
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George K. Reynolds III, Trustee
JENNIFER B. MUHLSCHLEGEL INCOME
TRUST DATED DECEMBER 31, 1994
By:
By: /s/ George K. Reynolds III
---------------------------------
George K. Reynolds III, Trustee
VICKI L. WHITEHALL INCOME TRUST
DATED DECEMBER 31, 1994
By: /s/ George K. Reynolds III
---------------------------------
George K. Reynolds III, Trustee
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HARRY J. MUHLSCHLEGEL
1997 FAMILY TRUST
By: /s/ George K. Reynolds III
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George K. Reynolds III, Trustee
KAREN B. MUHLSCHLEGEL
1997 FAMILY TRUST
By: /s/ George K. Reynolds III
---------------------------------
George K. Reynolds III, Trustee
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